How do I Borrow After Foreclosure?

You can rebuild your life after foreclosure.

Foreclosure is an emotionally and financially devastating event, but it is not the end. If you have been through a foreclosure, or are about to go through foreclosure, know that it is possible to obtain a mortgage again. With some effort, diligence and discipline, you can rebuild your credit score, qualify for loans with market interest rates and own your own home again—in less than the seven to ten years it will take for the foreclosure to drop off your credit report.

1

Obtain a copy of your credit report and check it for accuracy. Make sure the month of your completed foreclosure is noted on the report for future record. Create a list of the outstanding debts you find on the report.

2

Speak with a credit-counseling agency, financial advisor or accountant to get your finances in order and to establish a monthly budget. Lenders are looking for you to learn from your mistake and act more fiscally responsible after your foreclosure.

3

Settle any outstanding debts, especially ones with late payments, collections, judgments or liens, and pay down credit cards. Call your creditors and negotiate repayment terms, then stick to them--save checks and money order stubs as proof of your adherence. As long as you follow the agreed terms, your creditors can no longer report negatively against you and you can start fresh.

4

Investigate filing for bankruptcy if you are unable to come to terms with creditors or are unable to repay your debts. Consult with an experienced bankruptcy attorney to see if bankruptcy is the right solution for you.

5

Pay all bills on time, especially any remaining open credit card accounts or loans you have. Lenders will want to see clean credit with no late payments after the time of the foreclosure in order to give you a new loan or mortgage.

6

Use credit cards for small purchases on a regular basis and pay the accounts off in full each month. Do not let your cards become “maxed out,” since this shows lenders that you have not learned fiscal responsibility. Paying off the full balance each month will also help you avoid paying the high interest rate your cards will be likely to charge after the foreclosure.

7

Save money for a down payment, whether for a car, house or other large purchase. Having money to put down makes you a better risk in the eyes of a lender.

8

Apply for installment loans such as car loans with the expectation of being offered higher-than-normal interest rates. As you build a history of paying them promptly, you will be able to get better terms. You may also go to a “buy here-pay here” establishment that offers credit to high-risk borrowers with bankruptcies and foreclosures on their records.

9

Apply for a Federal Housing Authority (FHA) or the Department of Veterans' Affairs (VA) home loan after three years or a conventional loan after four or five years. FHA or VA loans are a better option than conventional loans for people with a troubled credit history since they are flexible in their credit guidelines and will not penalize you with a higher interest rate for a poor credit history. They typically carry an interest rate about 0.5 percent higher than the market rate on a conventional loan.